Genuineness of transactions: GST records and inventory reconciliation prevent classifying purchases as bogus; compensatory TDS interest is allowable.

Documentary GST registration and return records, input tax credit entries and detailed inventory reconciliation establish the genuineness of purchases and, therefore, purchases cannot be treated as bogus solely because a supplier failed to file income-tax returns; the addition based on treating a percentage of purchases as bogus is deleted. Interest paid on late deposit of TDS characterised as compensatory (not penal) is not disallowable under Explanation 1 to sub-section (1) of section 37; the disallowance of such interest is deleted. Both deletions were upheld in favour of the taxpayer.

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Issues: (i) Whether the deletion by the Commissioner of Income Tax (Appeals) of an addition of Rs. 88,16,120/- made under section 69C read with section 115BBE (treating 20% of purchases from a non-filer as bogus purchases) was justified; (ii) Whether the deletion by the Commissioner of Income Tax (Appeals) of an addition of Rs. 6,893/- made by the Assessing Officer by treating interest on late deposit of TDS as disallowable under Explanation 1 to sub-section (1) of section 37 was justified.

Issue (i): Deletion of addition of Rs. 88,16,120/- treating purchases from a party who did not reply to notices and was a non-filer as bogus purchases under section 69C read with section 115BBE.

Analysis: The assessee produced purchase registers, inventory ledgers, tax audit details, GST records showing supplier registration and GST returns, and evidence of input tax credit and corresponding sales entries. The Assessing Officer recorded non-receipt of response from one supplier and relied on non-filing of income-tax return to treat 20% of purchases as bogus without addressing the explanations and documentary material furnished. The material on record included corroborative GST-based entries and inventory movement accounting for every gram of metal/jewellery.

Conclusion: The deletion of the addition of Rs. 88,16,120/- is upheld in favour of the assessee.

Issue (ii): Deletion of addition of Rs. 6,893/- being interest on late deposit of TDS held disallowable under Explanation 1 to sub-section (1) of section 37.

Analysis: Precedent establishes that interest on arrears of tax or late payment in similar contexts is compensatory in nature and not penal. The assessee characterized the payment as compensatory; relevant judicial authority treating such interest as compensatory was applied to the facts.

Conclusion: The deletion of the disallowance of Rs. 6,893/- is upheld in favour of the assessee.

Final Conclusion: The appeal filed by the Revenue is dismissed and the appellate authority's deletions of the impugned additions are affirmed, resulting in no addition being sustained against the assessee on the decided issues.

Ratio Decidendi: Where documentary evidence including GST registration and returns, input tax credit records and detailed inventory ledgers establish the genuineness of transactions, purchases cannot be treated as bogus solely due to the supplier's non-filing of income-tax returns; and interest on late payment of tax obligations that is compensatory in nature is not disallowable under Explanation 1 to sub-section (1) of section 37 of the Income-tax Act, 1961.

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